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Second Reading Speech by Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister for Finance, for the Constitution of the Republic of Singapore (Amendment) Bill 2015 at The Parliament, 13 Jul 2015

13 Jul 2015


A1. Madam Speaker, I beg to move, “That the Bill be now read a second time”.

A2. The Constitution (Amendment) Bill before the House seeks to include Temasek Holdings in the Net Investment Returns framework from Fiscal Year 2016.

A3. The current framework that governs Government spending of investment returns from Temasek is based on the actual dividends received from Temasek. The amendment to the Constitution would shift the Government’s spending to one based on the expected long-term real rate of return on Temasek’s net assets (including both realised and unrealised capital gains).

A4. I had announced the Government’s intention to make this change, and why we are doing so now, when I addressed the House earlier this year in Budget 2015. We debated the proposed change. Several members spoke on the proposal, and were in support of it. We are now proceeding with the formal amendments to the Constitution to implement the change.


B1. The NIR framework was introduced in the amendments to the Constitution that Parliament passed in 2008. It has three main features:

a. First, the NIR framework caps Government spending at 50% of investment returns. This 50% cap had in fact been introduced when the Constitution was amended in 2001, and was retained in 2008.

b. Second, Government spending under the NIR framework is based on real returns instead of nominal returns. This ensures that the value of our reserves is not eroded over time because of global inflation. It preserves the international purchasing power of our reserves.

c. Thirdly, the NIR framework is based on expected long-term returns. The expected returns include both realised and unrealised capital gains. They hence do not depend on whether investments are divested, and capital gains realised.

i. This is an important feature. It reduces the volatility of government spending based on investment income, as the expected long-term returns do not hinge on the state of the markets from one year to the next. It hence enables better fiscal planning.

d. These are the three technical features in how the NIR framework enables and caps Government spending. But they reflect the more fundamental commitments that we have made through the framework.

i. We are committing ourselves to sustaining the value of the nation’s reserves over the long term, so that the reserves provide a defence against crises encountered by our children or any future generation of Singaporeans.

ii. We are also committing to a fair balance between the interests of today and tomorrow – between meeting immediate needs, the future needs of the current generation of Singaporeans, and importantly, the interests of our future generations.

iii. The NIR framework provides a significant stream of income for today’s spending - already about 2% of GDP (in fact it is slightly more than 2% today) on the Government Budget – but also seeks to ensure a broadly similar stream for decades into the future.


C1. When the NIR framework was introduced in 2008, it was intended to be applied eventually to the expected returns of all three of our investment entities – GIC, MAS and Temasek. We proceeded with GIC and MAS first.

C2. We had deferred Temasek’s inclusion when the NIR framework was first introduced, and indicated that we would review this after some years of implementation. Temasek’s investment strategy was still evolving then, having only begun to invest in more geographies and sectors in 2002. There were also no established methodologies for projecting expected returns for a portfolio like Temasek’s, given its investment approach of taking concentrated stakes and making direct investments.

C3. The Government is now ready to apply the NIR framework to all three investment entities. We have worked with Temasek to develop a methodology for projecting its expected returns. We also had the benefit of the experience gained from implementing the NIR framework with the GIC and MAS. Having gone through the global financial crisis, which dramatically shifted the global outlook and both consensus and expert views of future returns, we are assured that the NIR framework and the processes we have in place are sufficiently robust.

C4. Including Temasek in the NIR framework will provide the Government with additional fiscal resources in the years to come. We estimate that it will increase the total NIR Contribution to the Budget, from about 2% of GDP under today’s framework to about 3% on average over the next five years under the enhanced framework.

C5. The enhancement to the NIR framework is not the only change in our revenues. We have also made, as Members know, changes to our domestic taxes.

a. Our first move was to make our property tax regime more progressive and to increase property tax rates at the higher end.

b. We also increased personal income taxes for those in the top income brackets in this year’s Budget.

C6. Together, these enhancements to our revenues come as we embark on the next phase of our nation’s development. We are making critical investments in the coming years in three key areas:

a. In healthcare, where we have strengthened support for both lower and middle-income Singaporeans, and are expanding the capacity of our healthcare system to cater to a progressively older population.

b. In human capabilities, where we are making a major investment in our people through SkillsFuture, while spending more to strengthen education from the pre-school to the tertiary levels. We are also investing in R&D and innovation as the basis for future growth of our enterprises.  

c. And thirdly, in our transport infrastructure, where we are already investing in a much larger and better public transport system. We will also be developing Changi Airport T5 and Tuas seaport for the long term.

C7. Each of these major investments will benefit all Singaporeans, not just a particular group. They will also bring benefits to our economy and our society for many years to come. The enhancement to our revenues through the inclusion of Temasek in the NIR framework and our other revenue measures will benefit Singaporeans today and tomorrow.


D1. I will now describe the relevant amendments to the Constitution. I can be brief, because the main change is simple.  The Bill seeks to amend Article 142(4) of the Constitution to include Temasek’s net assets in the definition of the “relevant assets” from 1 April 2016. Currently, the relevant assets are defined only for GIC and MAS.

a. The term “relevant assets” is the asset base upon which the relevant entities’ expected long-term real rates of return are applied, in order to derive the amount of NIR Contribution that could be taken into the budget.

b. “Relevant assets” refers to the net assets managed or owned by the respective investment entities, less the liabilities of the Government, which includes borrowings such as SGS and SSGS.

D2. The other amendments in the Bill relate to technical changes to the names of Government companies currently listed in Part II of the Fifth Schedule, as well as the removal of obsolete references to Fiscal Year 2000 in Article 142. These technical changes are not material.


E1. Madam Speaker, we are not alone in our approach of writing rules into the Constitution to bind current and future Governments to the practice of fiscal sustainability.

E2. We were an early adopter, with the Constitution being first amended in 1991 to protect the reserves through the institution of the Elected Presidency. (This was followed by two rounds of amendments, in 2001 and 2008, to set out clear rules limiting government spending of the investment income from our reserves.) Since then, several other countries have introduced similar measures to institutionalise fiscal prudence. It has caught on since the global financial crisis especially. To give some examples:

a. Germany made a constitutional amendment in 2009, requiring Government to run budgets at, or close to, structural balance every year . To stick to this fiscal rule, the Germans are having to cut back on spending, and have introduced new taxes. As a result, Germany’s debt-to-GDP ratio has fallen by more than 6 %-points since its 2010 peak, to reach 75% at the end of 2014.

b. Spain, which has much higher debts at about 100% of GDP, introduced a balanced budget constitutional amendment  in 2011. It would be binding from 2020 onwards. But Spain has already begun painful adjustments.

c. The UK is another example. Its government debt is still above 80% [of GDP] despite the sharp reductions in public spending in recent years. The Government has now proposed a ‘Charter for Budget Responsibility’. It would require the Government to aim for budget surpluses in normal times, so as to reduce its debts over time. 

d. The Swiss moved earlier, with a similar constitutional amendment that requires the Government to plan for structurally balanced budgets.  Switzerland’s debts are much lower than most other European countries, but they want to avoid rising debts. 

E3. In all these cases, governments are trying to reduce the future burden of debts on their Government budgets. They want to avoid rising debt servicing costs, which squeeze out other spending, including essential spending. 

E4. Our starting point is very different. The Singapore Government’s balance sheet is in a net asset position, not a net debt position. Far from having to raise taxes or cut spending to pay for debts, our NIR framework provides us with a stable stream of revenue for the Budget each year, well into the future.

E5. That’s the privilege we have, because of the prudent fiscal policies the Government adopted when we were a young nation, when our population too was young and the economy was growing quickly. We ran budget surpluses in good times, and did not seek to spend surpluses just because the money was there. We invested the reserves prudently and built up professional capabilities in global investing. The approach that we have taken in the past has put us in a position of strength now, as our population gets older and as growth slows.

E6. The transition of Temasek to the NIR framework will provide the Government with added fiscal resources to make the critical investments in capabilities and infrastructure that we need for the future. But the amendments introduced today do not alter the commitments we made when we introduced the NIR framework in the Constitution in 2008. The framework commits us to sustaining the value of our reserves, and to achieving a fair and judicious balance between the interests of today and tomorrow: a balance between spending for today’s needs and saving for the future needs of today’s generation and generations to come.

E7. Mdm Speaker, I beg to move.